Renting For Life Will Change Society – For Better And For Worse

Heads in beds as an investment strategy has been unstoppable over the past few years. For the first time on record, more money was invested globally last year in rented residential – multifamily, student housing and senior living – than in offices, Savills data showed.

The expansion of the sector makes it possible for a person to live in good-quality, institutionally owned rentals for an entire lifetime, moving from purpose-built student accommodation to build-to-rent after securing a first job, then to a single-family rented home when kids enter the picture and to senior living upon retirement.

The shift is wonderful for institutional real estate investors seeking lifetime customers providing stable income, which closely tracks inflation, for decades.

But the picture is more mixed for society as a whole.


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The growth of people renting in the private sector has been sharp. In the UK, it has grown by 60% to 4.5 million in 2017, according to the UK government Office for National Statistics. UK home ownership dropped from a high of 70% to 63% in 2019, the Brookings Institute said in an academic paper, and the proportion is still falling. Meanwhile, the growth in private renters has been fueled by a twin decline in home ownership and individuals living in government-backed social housingwhich have both seen numbers fall since the 1980s.

The rise of renting and decline of home ownership represents an upending of the social model that has dominated the UK and the US for the past half century, and the model on which the economy is built. And more people renting has inevitable knock-on consequences for society, even if they are living in the affordable housing sector.

On one hand, it could be positive for job mobility and economic productivity, as well as the battle against climate change. On the other, the current trend risks creating a demographic time bomb, with millions of renters hitting retirement age without the ability to pay for adequate housing in old age.

There is no right or wrong model for a housing market. But Britain is at a point of transition from one model to another without much thought going into the potential consequences of the change.

“It sounds like a truly bad idea for people to rent for life,” Chair of the UK government All-Party Parliamentary Group on Housing and Care for Older People Lord Richard Best said.

Best, the country’s former social housing leader, has been at the head of government efforts to ensure that the current situation in the UK’s social care sector, with many older citizens unable to pay for housing costs and increased healthcare bills falling on the NHSdoes not get worse.

According to Best, there’s a problem coming down the tracks. The average private sector renter spends about a third of their income on rent. When people retire, income typically drops by half or more, especially if they have not earned enough to save for a private pension.

“An owner-occupier will pay off their mortgage over 30 years, then have a home they can live in or a capital asset they can use to finance their retirement,” Best said. “If they don’t, then that 33% they are spending on rent rises to 66% when their income halves. That means they need a pension pot that is almost twice the size in order to fund their living costs, and they still don’t have a capital asset. ”

The situation risks spurring huge growth in the number of people unable to pay for adequate housing and falling short of meeting their living costs when they retire, Best said.

“The history of private capital investing in rented housing is checkered,” Man GPM Head of Community Housing and Portfolio Manager Shamez Alibhai said. “If you look at student housing it has led to price inflation, to the point where universities now feel they have to step in and build their own housing again. And if you looked at the US, rents are rising by 10% a year in some cities, and that is creating social problems. The incentives of private capital have not always been aligned with those of governments and communities, but there is an important role for socially responsible investors to help address the market’s shortfall in affordable housing supply. “

In pure financial terms, putting money in the housing market is not the most effective use of capital over the long term. The US housing market has returned 3.7% a year on an annualized basis since 1928, a study by website Investopedia found, using Case-Shiller housing index data, versus 9.5% for the S&P 500.


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A growth in renting risks creating a situation in which large numbers of retirees face huge cost-of-living increases.

But people can’t live in a stock portfolio. Buying a house rather than renting allows them to save and cover their housing costs at the same time. In addition, rents rise, typically in line with inflation, whereas the level of a mortgage stays static.

There is also the psychological element to consider. As LGIM Real Assets Head of Build To Rent Dan Batterton pointed out, owning your own home gives people security – the knowledge they won’t be kicked out at the end of a typical one-year tenancy.

But, Batterton said, this lack of certainty for renters is being assuaged by government changes such as the end of no-fault evictions, which give renters more security of tenure. And institutional owners of purpose-built rented residential want tenants to stay in place for as long as possible to give them security of income.

He added that on an economic and financial level, people look at the question of home ownership versus rent in the wrong way.

“If someone is saving for a deposit, they might be putting their money away in a bank for 10 or 15 years, and that money is not economically active or useful,” Batterton said. “If you look at what happens in Germany (where home ownership has historically been about 50%), people might take that money that they aren’t saving for a deposit and use it to buy a new Mercedes. That consumer spending then has a multiplier effect for the economy. ”

Germany has a higher savings rate, he pointed out, alongside solid consumer spending (albeit at lower levels than the UK), all made possible by a large stock of good-quality but affordable rental housing, much of it built by the German state in the decades after the second world war.

Batterton said LGIM explored the possibility of creating a savings product giving people access to returns from the housing market so they could save for a deposit and still get the benefits of house price inflation. But creating such a product is not easy.

“Renting also allows greater job mobility,” Shoosmiths partner Choisanne Man said. “If your situation changes, you are able to move you and your family quickly, and that just isn’t the case when you own a home and typically have to sell before moving.”

There is another, wider potential benefit of a greater proportion of people renting rather than owning their own homes, if they are renting them from institutional owners.

“Institutional owners have more capital available to improve the quality of housing, especially when it comes to sustainability,” Moorfield Head of Special Projects and Legal Sadie Malim said.

Because institutional real estate owners typically have ESG targets and external stakeholders pressuring them to produce sustainable assets, they have a greater incentive than individual owners to reduce the carbon emissions of existing assets or build new homes that meet net-zero targets.

“There are a lot of real estate investors with a purpose beyond just making a return today,” Malim said.


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Germany has higher rental rates, but also higher savings and good consumer spending rates.

All-Party Housing group Chair Lord Best, about as strong an advocate of increasing owner occupation of housing as can be found, even makes the point that comes up again and again when talking to people in all parts of the residential sector. Home ownership on its own is not a panacea.

In fact, government policy, which has promoted home ownership while failing to increase supply, has created greater social inequality: Those not able to get on the housing ladder fall behind their peers who can, as rents increase faster than wage inflation and they are left with no capital asset for money spent on housing.

“We need to boost owner occupation, but we also need to boost the social housing sector alongside that,” Best said.

The number of homes built by the private sector has remained fairly constant for the past 40 years, government figures show. But in 1973, 42% of the UK population lived in council houses, or homes built and rented by the government or local authority, versus just 8% today. According to government figures, annual housing completions from public sector bodies dropped from more than 100,000 to fewer than 20,000 over that time.

We have come full circle now, with rental housing again on the rise, only this time owned by the private sector. Whether people own or rent, affordable housing built by the public sector is needed, experts told Bisnow, because history would suggest the private sector is unable to meet society’s needs on its own. No matter what party has been in government for the past 40 years and no matter the changes to the planning system, the number of homes produced by the private sector has remained constant.

“At the moment, the government housing subsidy is about £ 23B a year, but a lot of that is just going to the private sector,” Best said. “We would be much better off building that housing ourselves so the community has the benefit and control of the asset. The problem is that costs money upfront, and the government doesn’t necessarily want to pay. “

One potential solution, Moorfield’s Malim said, is to create a financial partnership between public and private sector so those interests can be aligned.

“There is a real opportunity to get local government pension schemes to place some of the capital they manage into building social housing, and combining that with investment from global institutions,” she said. “At the moment these pension funds are invested mainly in equities, but if they put even 5% of their allocation into social housing, it would enable the creation of large numbers of new socially rented homes. They could play a real role in solving the problem of affordability in their own communities. “

The current path being followed in the UK is similar to that of the US, with home ownership moving out of the reach of a greater number of people while rental housing for people of all ages also becomes more difficult to afford.

“We’ve seen this story; it’s been written before, ”Alibhai said. “It’s a question of what story do we want to write now.”

For everything you need to know about the BTR sector, come to Bisnow’s Build-To-Rent Annual Conference on 8 and 9 June at Wembley Park. Sign up here!

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